For older borrowers, which lenders typically class as people 55 and over (we’re not sure why either) there are now a few different types of mortgage product available for you. Here’s a quick summary of the main types.
Interest only mortgages
With any mortgage you take out, you have to pay a lender interest at an agreed rate for borrowing the money, as that’s the business they are in! With an interest only mortgage you only pay the interest charge every month. You don’t have to make monthly repayment towards the money borrowed, which means the monthly payments are the cheapest they can be.
However, the lender will only allow the mortgage to continue for a set amount of time known as a mortgage ‘term’. Come the end of the term, your will need to have found another way to have paid the mortgage back. This could be selling the property you are in, another property or selling other assets. Of course this means that this should only be considered if you are comfortable with doing something like this.
Like an interest only mortgage your monthly payments include the interest charged, however the payments also include repayment of the money you have borrowed, known as ‘capital’. The money you have borrowed is divided up over the term of the mortgage in months, meaning if all the payments are made, the money borrowed is paid back by the end of the term. As you are repaying interest and ‘capital’, the monthly payments are higher than an interest only mortgage.
Retirement interest only mortgage
This is just like an interest only mortgage except there is no ‘term’. The mortgage can continue indefinitely, as long as the interest is paid every month, until the property is sold or the applicants pass away, at which point the lender will repossess the property in order to repay the mortgage. These are typically a bit more expensive than standard interest only mortgages due to the feature of the term having no end date.
This is like interest only, except it isn’t. The lender charges interest, except you don’t have to pay it every month. Whilst this sounds great, every month it gets added to the mortgage meaning you pay interest upon interest!.
That said, lifetime mortgage providers typically allow you to pay the interest if you want to. Lifetime mortgages gives you the security of knowing your mortgage wont go into arrears if for some reason you cant pay the mortgage each month, like it would with a standard mortgage. (Please note lenders will not allow your mortgage plus the interest you have accumulated to exceed the value of the property)
At Advantage FS we don’t provide advice on this type of mortgage. If we identify that this might be a viable option for you we will make you aware and recommend a trusted specialist where necessary.
My current mortgage is ending and I need to replace it
Many people with interest only mortgages are finding that their term has run out, before they are able to clear the loan. If you are one of these people, do not panic.
The mortgage market for older borrowers is booming, you just need to know where to look. Whilst on the high-street, most lenders will not grant mortgages beyond the ages of 70 or 75, there are competitive lenders offering terms up to 90, 95 or even without cap.
Now that your current term has ended and you will be setting up a new mortgage, it is worth considering both a repayment or interest only mortgage over the various available mortgage terms. You should consider carefully how long you wish to stay at the property and weigh that up against your available budget to repay the mortgage as you go. There are a few different types of mortgage that could best suit, from repayment, interest only, retirement interest only (RIO) and lifetime mortgages. At Advantage we have experience in this field and a rare ability to consider ALL of these products, to ensure you get the absolute best fit.
My current lender won’t give me a new rate
Mortgages have changed a lot over the years, particularly since 2007. As a result your current lender may have stopped lending for your specific situation, but they still have your mortgage on their books. When this happens, you can find that they may not offer you new rates. Fortunately, where certain lenders have left a niche, others have started specialising in this area. Particularly in the last 3 years, the number of mortgage options for older borrowers has increase dramatically.
It’s Important to seek advice, if you’re in this situation as you may be classed as a ‘mortgage prisoner’.
I want to use my home’s equity to help my lifestyle
Many people nearing, or in retirement, are finding that they have significant assets, but they are tied up in their home! As a result, arranging a mortgage to raise funds is becoming increasingly common. This could be to improve your home, raise money for a car or even a holiday.
There are many different ways this can be done from a traditional repayment or interest only mortgage, to a retirement interest only mortgage or lifetime mortgages. You should always seek professional advice, as each one comes with its own set of pros and cons which effect everyone differently.
The quickest way to discover the maximum you can comfortably borrow is by speaking to an experienced mortgage broker, such as ourselves, and getting them to check out all available mortgage deals, that way you can be sure you get the cheapest deal. Contact us now to get your home move moving!